Kroll Bond Rating Agency has upgraded the subordinate note classes from the $950 million Mercury Financial Credit Card Trust, 2021-1, citing improved annualized charge-off rates and payment rates on the managed portfolio of Mercury Financial, formerly an independent consumer finance company.
The charge-off rates improved largely as a result of borrower assistance and government stimulus funds to consumers in response to economic slowdowns amid the COVID-19 pandemic.
KBRA said it upgraded classes B, C and D, moving the ratings from ‘BBB’ to ‘A’; ‘BB’ to ‘BBB’ and ‘B’ to ‘BB’, respectively, affecting approximately $282,500 million in notes. The rating agency also affirmed the ‘A+’ rating on the $667.5 million class A notes.
The rating agency noted that it charges off past-due receivables at 180 days. On an annualized basis, KBRA said, the 2021 gross charge-off rate though October 2021 for the managed portfolio averaged 7.9%. This compares with an average of 12.0% for the full-year 2020 and 15.5% for full-year 2019. During its review, KBRA lowered its base-case annualized gross charge-off assumption to 11.3% from 13.8%, the assumption at the deal’s closing on March 17, 2021.
First Bank & Trust originated the receivables in the master trust, KBRA said. Payment rates averaged 11.3% from January 2021–October 2021, higher than the approximately 6.1% from May 2017–December 2020.
Mercury Financial was the largest independent a specialty consumer finance company before investment affiliates of Varde Partners acquired it in 2017. With offices in Wilmington, DE and Austin, Texas, Mercury Financial offered its credit card products to near-prime consumers with FICO scores between 600 and 700.
The typical Mercury Financial customer has a bureau depth of 20 to 30 years, owns two to three credit cards, and has access to an average credit line of $3,000 to $5,000. They also report income between $50,000 and $75,000.
The Mercury Financial Credit Card Master Trust, 2021-1, transaction was the first from the platform, according to Finsight. The trust followed up with the $450 million, MFCC 2022-1. Credit Suisse Group and Guggenheim Securities were co-structuring leads on both deals.
